The Trump administration on Thursday announced that it will no longer make the Affordable Care Act's (ACA) cost-sharing reduction (CSR) payments to insurers for reducing out-of-pocket costs for low-income enrollees on the Affordable Care Act's exchanges.
A lawsuit filed by the GOP-controlled House in November 2014 challenging the payments is currently pending in court. The House in the suit argued that the executive branch, which has been making the payments, does not have the constitutional authority to do so because Congress has not explicitly appropriated money for CSRs. President Trump had repeatedly threatened to suspend the CSR payments, which were expected to total $7 billion this year, but had until now continued to make them to insurers on a monthly basis.
But on Thursday, the same day Trump signed an executive order intended to ease certain health plan regulations, press secretary Sarah Huckabee Sanders confirmed the administration was halting the CSR payments. "Based on guidance from the Department of Justice, [HHS] has concluded that there is no appropriation for cost-sharing reduction payments to insurance companies under Obamacare," Huckabee Sanders said, adding, "In light of this analysis, the government cannot lawfully make the cost-sharing reduction payments."
What does this mean for premiums, out-of-pocket costs, and the uninsured rate?
In the absence of the CSR payments, the ACA still requires insurers to offer cost-sharing discounts to low-income individuals, but the federal government will no longer be reimbursing insurers without an explicit appropriation from Congress. According to University of Michigan law professor Nicholas Bagley, several states also will likely "seek an immediate injunction from the D.C. Circuit to keep the cost-sharing payments flowing."
Some stakeholders have warned that cutting off the CSR payments would lead to higher premiums and that insurers were already raising rates amid uncertainty. The Congressional Budget Office (CBO) in August projected that halting the CSR payments would cause premiums for silver-level exchange plans for the 2018 coverage year to rise by about 20 percent in 2018. The agency noted that since insurance subsidies would increase as premiums increase, most exchange enrollees "would pay net premiums ... that were similar to or less than what they would pay otherwise." According to the Kaiser Family Foundation, about 6.7 million Americans purchase ACA-compliant individual market coverage and do not receive subsidies, and would therefore "feel the full brunt of premium increases."
CBO also projected that the number of uninsured Americans would increase in the short-term but decrease in the long-term as a result of the loss of CSR payments. Specifically, CBO said that compared with its baseline projection, there would be one million more uninsured individuals in 2018 but one million fewer uninsured individuals in the years 2020 to 2026. The agency predicted that more individuals would purchase exchange coverage in those later years because they would receive increased subsides (as a result of higher silver-level premiums) that would make gold and bronze plans more attractive.
According to CBO, federal spending would increase by $247 billion over the next decade because spending on subsidies would grow by $365 billion, offset by $118 billion in savings over the next 10 years from discontinuing the CSR payments.
What does this mean for insurers, providers, and the exchanges?
According to Politico, the change "is likely to jolt already fragile Obamacare markets—although the impact may be less severe than it would have been a few months back," as many insurers have already submitted higher-than-usual premium rates amid the uncertainty surrounding the payments. Some states had taken certain precautions, such as allowing insurers to increase their premiums in the even the CSR payments were canceled.
Insurers could choose to leave the ACA exchanges. Jonathan Cohn reports for the Huffington Post that CMS' insurer contracts for the federal exchange included language that could allow insurers to exit their contracts if the CSR payments were pulled. Josh Dawsey and Paul Demko report for Politico that it is unclear if the administration's decision will cause insurers to exit the exchanges, since leaving would require "an extensive back-and-forth with state regulators."
Rachel Sokol, a practice manager with Advisory Board's Health Plan Advisory Council, told the Daily Briefing that she expects "many plans will take the safe route and exit the ACA marketplaces." She added that "those that stay may be able to benefit from a 'winner-take-all' market if:
- They have the time and money to stay in it for the long haul and still survive. Once many plans leave the marketplace, the few who stay would be able to secure more favorable rates from both providers and regulators.
- They could market their members to switch tiers. Successful exchange plans built their membership on the 100 to 250 percent FPL population that qualified for CSR subsidies and therefore was less price-sensitive. But as silver plan premiums increase with the loss of CSR payments, some members wouldn't want to stay on the relatively expensive silver plans when bronze plans would be practically free and gold plans could have nearly the same possible out-of-pocket costs as silver plans."
Yulan Egan, a practice manager with Advisory Board's Health Care Advisory Board, said that while ending the CSR payments might lead to insurers leaving the market and an uptick in uncompensated care for providers, "it is important to keep in mind that exchange enrollees represent only a small portion of the typical health system's patient base."
Egan added, "In 2016, only about 4 percent of the U.S. population received coverage on the ACA exchanges, a number far dwarfed by the proportion of the population receiving coverage through Medicare (about 17 percent), Medicaid (about 19 percent), or employer-sponsored insurance (about 47 percent). As a result, ending the CSR payments is unlikely to have a destabilizing or catastrophic impact on most provider organizations."
"However," she said, "to the extent that ending the CSR payments reinvigorates the GOP's legislative health reform efforts or generates interest in bipartisan reforms, the move could spur additional actions that would have a more substantial impact on provider organizations."
While some Republicans praised the White House's decision to suspend the CSR payments, the move drew criticism from both Democrats and Republicans, and two state attorneys general threatened legal action.
House Speaker Paul Ryan (R-Wis.) praised the move, saying, "Under our Constitution, the power of the purse belongs to Congress, not the executive branch."
However, Rep. Ileana Ros-Lehtinen (R-Fla.) in a tweet said, "Cutting health care subsidies will mean more uninsured in my district."
In a joint statement, Senate Minority leader Chuck Schumer (N.Y.) and House Minority Leader Nancy Pelosi (Calif.) said the move would "punish the American people." They added, "It is a spiteful act of vast, pointless sabotage leveled at working families and the middle class in every corner of America."
New York Attorney General Eric Schneiderman (D) in a statement Thursday said he will file a lawsuit against the decision. He said, "I will not allow President Trump to once again use New York families as political pawns in his dangerous, partisan campaign to eviscerate the [ACA] at any cost."
California Attorney General Xavier Becerra (D) in a tweet also said he is "prepared to sue" over the payments.
In addition to litigation, health policy experts note there is another path to restoring the CSR payments: Congress could pass legislation to authorize the payments. According to the Wall Street Journal, sources said Trump has suggested to one lawmaker that he would be open to preserving the funding if they were included in a bipartisan bill. Senate Health, Education, Labor, and Pensions Committee Chair Lamar Alexander (R-Tenn.) and Patty Murray (D-Wash.) have been working to reach such a deal (Clason, "TrumpTracker," CQ HealthBeat, 10/11; Terhune, Kaiser Health News, 10/11; Dawsey/Demko, Politico, 10/12; Anderson, Balloon Juice, 10/12; Anderson, Balloon Juice, 10/12; Anderson et al., xpostfactoid, 10/11; Pear et al., New York Times, 10/12; Armour, Wall Street Journal, 10/13; Baker, "Vitals," Axios, 10/13; Savransky, The Hill, 10/12; Bagley, The Incidental Economist, 10/12; Axios, 8/10).
Here's your cheat sheet for understanding health care's legal landscape
With MACRA, HIPAA, the ACA, and countless others, the health care landscape has become an alphabet soup of legislation. To help you keep up, we've created a series of cheat sheets for some of the most important—and complicated—legal landmarks.
Check them out now for everything you need to know about the Affordable Care Act, antitrust laws, fraud and abuse prevention measures, HIPAA, MACRA, and the two-midnight rule.